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Tim Coyle

Study: Small Price Rise Hurts Housing Affordability

A lot of California legislators think just “one more small addition” to the cost of housing won’t matter. “After all,” they say housing in California is so expensive anyway that a modest new tariff “won’t be noticed.”

So, the added charge is routinely assigned to housing – presumably to appease some special interest, though it’s hard to imagine a group cheering more and more individuals being priced out of housing markets.

Now comes a study, commissioned by the National Association of Home Builders (NAHB), which shows those additional costs have consequences. The study says that for every $1,000 added the cost of a new home chases over 150,000 families from housing markets, nationwide.

In California, the state loses over 12,000 homebuyers for every $1,000 added to the cost of a home, according to the study. (An additional $1,000 – through offensive policies and regulations – is a no-brainer here in the state, by the way.)

What should this finding say to lawmakers? Especially those in California, where the median-priced home exceeds $700,000? Simple: added costs matter a lot so stop asking housing to do all sorts of new things.

If they really cared about affordable housing, though, they – together with local officials – would look at ways to lower the cost of production. Think of all the housing consumers who would be able to own a home in California if instead of an added cost the home was priced $1,000, or more, below normal. That would truly define a commitment to reform.

There are at least two immediate steps where they could begin their reform efforts: fees and environmental reviews. Meaningful action on those issues would go a long way to reducing costs an increasing affordability.

Reducing development fees would mean simply taking cash off the top of a home price. And, surely localities have plenty of cash to give.

Most local governments in Northern California, for example, charge as impact fees nearly $100,000 per house – an outrage. (Unbelievably, a few cities in the region charge up to and even in excess of $150,000.) Cities and counties can easily gouge homebuilders due to the “pay to play” dynamics that exist locally.

Consider what the builder is being charged for. A typical bill includes: a construction fee; an electrical fee; plumbing fee; mechanical fee; an earthquake design fee; a tax on residential construction; a fire-mitigation fee; two storm fees; a sanitary sewer fee; a park fee; a water hook-up fee; an affordable housing fee; a traffic impact fee; and as many as three other different transportation fees.

Though there is a fee accountability law, it has loopholes that localities regularly exploit. An easy fix is to establish the priorities for funding then cap the fees.

California’s environmental laws – principally the California Environmental Quality Act (CEQA) – are even worse for the development of housing than those safeguarding the fee-charging authority of cities and counties.

Take CEQA, for example. Enacted in 1970 and signed by then-Governor Reagan, CEQA was to be California’s premier environmental law – protecting the state’s natural treasures from future development. Since then, however, CEQA has become the greatest constraint to building housing, especially affordable housing – public enemy number one for development.

The law absurdly requires analysis and mitigation of everything in a project from floor-area ratios to parking requirements. Happily for local NIMBY groups, CEQA is the fastest and best way to stop new construction and getting a development project into court. And, there it will sit for months – even years.

It’s a standard that has to end. Repeal the law and start over. Prudently. And, only state lawmakers have the power to do this. It’s the same power needed to curtail the charging of sky-high development-impact fees.

California legislators have the potential to resolve the state’s housing crisis. They’ve just got to want to do it. Seriously.